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We Are Always Discounting

2013 January 28
by John Wallbillich

The subject of discounts holds perennial interest for enterprise lawyers. The best advisors tell leading law firms to avoid making fee discounts a strategy, and acknowledge that it often masks issues that run much deeper.

This is the definition of discount typically at issue in the corporate legal space:

A reduction made from the gross amount or value of something: as from a regular or list price.

Aha! There’s that pesky “value” word. Just when we thought we were making progress. Note the concept of “regular or list price.” High-end law firms employing top-shelf lawyers would argue that nothing they do is “regular” and “list price” is their our invoice says it is, and not a penny less. “We’re like Apple in legal” they say.*

Really? For every matter you work on? For all 1,000+ lawyers?

the price is right

But today I want to look at a different sense of discounting, something more like this:

To leave out of account: disregard; to minimize the importance of.

Outside counsel and In-house counsel approach this sense of discounting from different perspectives. Today a look at outside counsel; in a few days, I’ll return the favor to in-house counsel.

Lawyers in larger law firms discount; here’s a broad brush approach to four discrete groups:

1. Managing Partners: They can discount how much pressure competition is placing on firm clients, and how this affects the procurement of legal services. Some partners with key client relationships tell me that the response they get from managing partners or firm CFOs on discounts (yes those discounts) or AFAs is “We’re better, sell harder. I did.” Perhaps, maybe ten plus years ago, which in the dog years that frame legal change is more like 30.

2. Key Client Partners. This group is the point of the spear in enterprise legal these days. They find the clients and mind the clients. Some may be discount the reality that most GCs can get service X from firm Y or Z (and soon many others). They can also discount the fact that some services that experienced monthly demand may become more episodic. GCs who pay top dollar for all services all the time are known as “ex-GCs” in the industry.

3. Subject-Matter Expert Partners. These partners used to be seen as the real core of larger law firms. Their value was forged in a crucible that mixed the ore of high-end knowledge with the heat of consistent deals, cases or controversies. Alas, what this group sometimes discounts is the fact that when you are seen as a mile deep and an inch wide, it doesn’t take much to knock you out of the game.

4. Hail-Fellow, Well-Met Associates. They are hoping to get to (3) soon, and maybe (2) someday. Or land a gig in-house. There is a lot of virtual ink spilled on the plight of law students these days, and what the future means for them. It’s fair to look closer at law firm associates, since the firm probably doesn’t need more of those in group (3) generally, and jumping the shark to group (2) directly is really hard early in a career. Group (3) can hoard work and not want to train “cheaper rivals;” group (2) wants to grant them some client contact, but will be in hot water with group (1) if anything goes wrong.

So the take-away is this: before you look at a discount in terms of price, consider what you yourself may be discounting in terms of your honest view of the enterprise legal market today. Where do you fit in? Where is your firm or practice specialty headed? What are your competitors doing? (If you think you don’t have competition, it’s OK, but only if your name is Martin Lipton).

Price discounts are a lagging indicator of many decisions that happened much earlier. Next time, a look at what in-house counsel are discounting, and how this factors into what law firms are (or should be) doing.

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* NB on Apple: Yes Apple doesn’t discount its latest products and premium prices them to boot. But buried in the latest earnings release was information that Apple’s most supply-constrained product was the two-plus years old iPhone 4. It’s “free” on a two year contract. So a message to all big-time law firms that think discounts are for lesser legal lights: sure, don’t discount. Just be really really confident that your service design and delivery is better than Apple is with its products. And even if you are, somewhere there is a looming Samsung to your Apple.

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